Corporate governance and managerial expertise influence on financial distress: The mediating role of financial performance

Financial distress (FD) has been found to cause bankruptcies among publicly traded companies. Extant literature suggests that corporate governance (CG) and managerial expertise may influence FD. However, to date, limited studies have been conducted to examine the influence of CG and managerial expertise on FD based on the Indonesian experience. Thus, by taking into account the Indonesian series of corporate delistings, this study aims to examine the effect of CG and managerial expertise on FD, as well as the effect of financial performance in mediating the relationship between CG and managerial expertise on FD. Based on CG circular number 32/SEOJK.04/2015, data from 31 companies in 2016 and 53 companies in 2017 was analysed using logistics and multiple linear regression analysis. The results indicated that financial performance does not mediate the influence of managerial expertise, but mediate the effect of CG on FD. Moreover, CG does not affect financial performance. This implies that FD is caused by declining financial performance and by recruiting a competent manager, financial performance will be improved.